The World's Largest Resource for the Cart, Kiosk, and Temporary Retail Industry

Summer 2010 The Logistics of a Lease

Whether you’re an established specialty retailer with many cart locations or just looking to start out, it’s always a good idea to revisit the basics before signing a new lease agreement.

Specialty retailer Shannon Vela started her business, Madisonmaxx in La Palmera Mall, Corpus Christi, TX in March. The business sells T-shirts and hats with crystal-embroidered designs. The products represent children’s teams and are very popular with parents.

Before setting up shop, Vela did her homework. She researched area malls and looked at other carts and RMU examples in magazines. She says the biggest challenge for her was the rent.

Next came the inventory; even though she saw from others’ examples that she would need “a large selection of merchandise,” having the right amount of inventory was a challenge, Vela says.

Deborah Kravitz, CLS and Principal with Provenzano Resources Inc., says Vela is not alone. “The biggest hurdle we face is retailers underestimating the amount of inventory they need. They [often] open with not enough,” Kravitz says.

Revisit the basics

Of course, inventory issues are not the only ones you need to be aware of before launching or expanding your specialty retail business. If you’re ready to expand your specialty retail business into new centers or even start a new one, it’s always a good idea to revisit the basics of setting up shop. It’s important to know that both you and the leasing manager want the same end result: to have the right product in the right place at the right time.

Before you sign on the dotted line of a leasing agreement, there are many factors to consider and items to check off your To-Do list. Here’s a look at what you can do to maximize your success.

Cart or inline?

Leasing a cart or kiosk is a good way to test the waters before considering permanent space. If you want to consider in-line stores, be aware of the differences.

  • Size: Carts/RMU/Kiosks are typically provided by the landlord (unless the merchant desires to use their own unit) and range between 150-250 square feet. Other than visual merchandising, there is typically no build-out expense.
  • The lease for a cart/kiosk is simple and does not require negotiations involving a real estate attorney. Permanent inline leases are more complicated and it is advisable to get professional help.
  • Both kinds of leases involve ancillary charges. These charges include CAM (common area maintenance) and percentage rent and marketing fees. But short-term leases for carts or kiosks rarely include real estate taxes or service fees for trash and sprinklers.

The perfect product

Shoppers are always attracted by new and unique concepts—so are specialty leasing managers. Do some research and find the right product for your market. Make sure the product has a good markup (much more than keystone) and that you have reliable purchasing sources.

Deborah Kravitz, says “new interesting product” will trump most all other aspects of the business. As mentioned earlier, once you have decided which product to sell, don’t make the mistake of buying too little of it. Make sure you have enough inventory on stock, especially planning for peak holiday rush.

Scout the ideal location

Location determination involves both finding a center in which to operate and, once you’ve chosen a center, finding an ideal location within it to set up shop.

Shop all the malls in the area where you wish to operate. Talk to other retailer operators to gather information on traffic, sales and customer profiles. Find out who the anchors are and what monthly sales volumes for the center as a whole look like.

Once you have decided on the right property for your product, spend some time watching customers, traffic patterns and identify where you would ideally want to locate your business in the center. Be prepared to communicate your wishes to the leasing manager.

If you are unsatisfied with an assigned location, work with the leasing manager to resolve the situation at the end of the term of the lease. It is important to understand that relocation is not always easy because phone lines and electricity are only available in certain locations.

Keep an eye on the competition

Once you have decided on a center, study inline retailers to determine if any of them sell the product you wish to sell. Apart from the fact that competition is not a good idea when you’re starting out, it’s hard to sell a leasing manager on your product idea if it is going to interfere with a permanent retailer’s business.

I-Candi, a custom mineral makeup concept, also opened in March at La Palmera Mall in Corpus Christi, TX. Crystal Duenes, the owner/operator of the business, says she wanted to start the business nearly two years ago but had to wait because there was an inline store selling similar cosmetics. “I waited until it went out of business,” she says.

Business plan

Just as with any other business, if you are a retailer, set up a definition of success before selling products in the common area of a shopping center. Call or stop in the management office to introduce yourself to the leasing manager and ask for an appointment and a draft copy of a lease.

Chalk up a fully developed business plan that includes sales projections, cost of goods sold, gross margin, operating expenses—payroll, supplies, utilities, travel, telephone, insurance, credit card processing expense, advertising, storage, visual merchandising, miscellaneous items and most important, rent—and a description of what the RMU’s net profit will be monthly.

Kravitz requires retailers to produce a thoroughly filled out application with pictures of the product they want to sell, as well as details such as address, Federal tax ID, where they have previously operated, and references. “This first glance at their application tells a lot about the prospect and their level of attention to detail or lack thereof,” Kravitz says.

Heidi Maybruck, Owner of the Maybruck Group in Columbus, Ohio, says that for specialty leasing managers, understanding what the retailer wants to sell is critical. “I listen for: Do they understand their business? Where do they buy their product? Do they have an existing business?” she says. The Maybruck Group is a retail consulting firm that specializes in short term leasing services for shopping centers.

Maybruck recommends all newcomers visit score.org to get help from the all-volunteer staff who will help prospective tenants put together a business plan. Through small business mentoring and training at SCORE, retailers can get the necessary help for free before they visit with a leasing manager.

Rent negotiation

Most trained specialty leasing managers will not quote rent at the first meeting with a prospect. Maybruck says that her clients, who are private developers, care more about getting the right products in the property to match consumer needs. So rents are negotiated individually.

Most developers set leasing rental rates using a variety of methods. Rents depend on many factors including comparable rents in the market and the number of units the merchant plans on operating. “We take this information and compare it with the center’s sales per square foot and occupancy. And we come up with a rent range that allows for a huge range of variables,” Kravitz says.

Retailers need to be aware of the differences between leasing space year round and/or only during the Christmas holiday period as rents and traffic will vary. The definition of the “holiday period” might also vary.

While some believe it is from November 1 through January 5, others believe the period has condensed because shoppers increasingly wait till the very end. The new condensed period is from December 5 through January 10. This definition, of course, will determine how your rent is affected.

Retailers pay higher rents during the holidays because of the increased traffic. Make sure you have enough inventory in stock. Maybruck says she points out all the advantages of selling in the fourth quarter so the higher rents can be justified. She says she talks some retailers out of the fourth quarter too. Some are just not ready.

Image is everything

For some retailers, it isn’t the rent discussion that throws them over the edge—it’s the visual merchandising requirements.

The hardest part of any negotiation is getting merchants to understand the requirement for visual merchandising. “Tenants fight it because [some] developers don’t require it,” Kravitz says.

But visual merchandising is a vital element of sales—effective visual merchandising can work wonders for your business.

Maybruck says some landlords will give up marketing fees or extra charges, but never visual merchandising requirements. The only concessions Provenzano Resources considers are in programs that are struggling. Even here concessions come in the form of flexibility on rents and lease duration terms.

Rarely are concessions given on visual merchandising or the use clause. The use clause of a lease details everything a merchant plans to sell and limits items that may already be sold by other tenants.

Despite the lows in the economy, Maybruck says she’s still getting calls from prospects and still playing the matchmaker. “The entrepreneurial spirit has not been lost,” she says.

Crystal Duenes of I-Candi is an example of just such an entrepreneur. She spent nearly two months increasing her inventory levels. She also recognized she needed to hire three employees to assist in operating a mall-based business.

Duenes’ advice to other retailers: “Make sure you are financially prepared, have the right level of inventory, develop an operating business plan and be willing to make personal sacrifices.”

Mouse over images below to view.

What’s Popping

Pop-up stores are popping up everywhere. They offer fresh products and generate a lot of buzz. Pop-up stores can be a creative use of leasing space. They are also catching the attention of name brand retailers. Specialty Retail Report caught up with Christina Norsig, founder and CEO of PopUpinsider.com, a national online exchange for temporary pop-up real estate, to find out more about the growing trend.

What is a pop-up store?

A “Pop-Up Shop” is a temporary or retail event space used for generating sales and marketing brands. We define it as anything from one event to a year’s occupation of a space.

How is a pop-up operation different from a seasonal cart or kiosk?

Kiosks have been in existence since the advent of the shopping mall in the 1950s. A pop-up store is exactly that, a store that can be set up quickly. When there are empty retail stores in a shopping mall or strip center, pop-up tenants can fill the void much easier than moving a kiosk into the same space.

What are the advantages of a pop-up operation?

For one, a pop-up operation allows business owners to test a location before committing to a long-term lease. As we know, location is everything, and many businesses are struggling to secure small-business loans to invest in a long-term business strategy. Setting up a pop-up shop helps the owner determine the viability of a product or brand in a particular location without having to commit to a long-term lease. (Editor’s note: This is also the case for carts or kiosks).

Pop-ups are also good ways to generate quick sales or clear overstocks. Many Internet-based retail businesses find it advantageous to set up a local storefront to better showcase their products and provide shoppers an easy way to purchase items. The buzz created from the pop-up sales will linger even after the store closes.

Many large retailers—like Target and Toys ‘R Us—have also tapped into the benefits of pop-ups, using them as a marketing tool to expand their consumer outreach and do specific brand or design marketing.

Pop-ups also create consumer buzz because shoppers have an interest in experiencing first-hand, the products or concepts being featured. A good example was the recent pop-up shop in New York City for Liberty of London. It ran out of merchandise before closing due to consumer excitement about the limited-distribution designs featured in the temporary store.

Do retailers not risk the image of impermanence with these pop-up stores? How do customers get enough trust to buy from these—will the business be portrayed as a fly-by-night operation?

It varies from store to store, but most customers are unaware of the lease agreement between the tenant and landlord so the stigma of impermanence is usually a non-factor. Additionally, many pop-up shops end up becoming permanent viable tenants.

To quickly build customer trust, it’s important for a retailer to generate enough buzz about their store. During this recession, residents around East 57th Street in New York City had grown accustomed to vacant storefronts. Yet for five weeks during the last holiday season, locals were delighted to discover the introduction of a pop-up shop, which added life and excitement to an otherwise dreary block. With bright lights and holiday decorations in the window, this pop-up shop went beyond retail to provide a real sense of community spirit and hope, giving passersby a true emotional boost during a difficult time.

What factors should a retailer consider before setting up a pop-up store?

Location is probably the most important factor to consider when setting up a pop-up shop. It’s important for the retailer to work with the property owner to determine if the services provided will mesh well with the neighborhood.

Retailers should also look at surrounding stores and the history of pop-up retail in the area. If some of the current retail stores in an area started out as pop-ups, then there is a good chance that the neighborhood is prime for pop-up retail.

If you have a more permanent operation how do you ensure consistency of the marketing message?

Maintaining consistency of branding is possible through signage, store design, service protocols and other strategies. However, the beauty of a pop-up shop for permanent retailers is that it affords them the freedom to deviate from their typical marketing messages to test others that could be implemented throughout all of their locations.

Christina Norsig is founder and CEO of PopUpInsider. She has pioneered several techniques for using
pop-ups as powerful interactive marketing tools for both brands and real estate owners. To learn more visit
popupinsider.com.

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The other side of the Fence

For retailers it helps to know what the role of specialty retail leasing managers is. That way, you can understand where they are coming from and possibly negotiate the best outcome for both parties.

The leasing manager works to meet the shopping center’s specialty leasing objectives. These objectives are two-fold:

  • Add merchandise to the common area that complements, not detracts from the overall merchandising plan for the property. This means finding unduplicated products and/or new categories of merchandise to add to the center.
  • Lease to retailers who can successfully sell merchandise on visually inviting carts or RMUs. These retailers must meet high standards of customer service and pay a high enough rent to meet the center’s budget goals.

A specialty retail leasing manager has many jobs including prospecting for new tenants and teaching new tenants how to open and close an RMU. The deal-making aspect of their job is the most important, as it insures the merchandising direction of the shopping center and meets planned budget expectations.

The leasing manager evaluates the prospective tenant’s business plan to determine if he/she has the financial capability to operate in the common area. Flushing out the business plan includes discussing the concept and use clause for the cart or kiosk, the staffing plan, visual merchandising ideas, reviewing insurance requirements, identifying the right location and determining the length of term i.e., weekend versus three months or holiday.

“I am all about trying to develop the entrepreneur. What I do is really entrepreneurial leasing. If you just look at your bottom line you are not going to be successful. You have to nurture and teach the retailer to be a successful merchant,” says Heidi Maybruck, Owner of the Maybruck Group in Columbus, Ohio.



Duffy C. Weir

Duffy Weir is the former vice president and director of specialty retail and marketing at The Rouse Company of Columbia, MD. Now an independent retail marketing and sponsorship consultant and writer, Weir travels the world searching for what she says "makes marketplaces tick." She can be reached at Duffyllc@comcast.net or 410.252.8885.

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